Ontario's Construction Lien Act protects those who perform services or supply materials to a construction project that even includes a home renovation. It gives them a remedy against the owner should their work or materials not be paid for. The Act only applies to contracts performed in Ontario. The Act allows an unpaid supplier of materials or services to place a lien on the property. The lien prevents the sale of the property, until the lien is settled and removed.
A lien arises when the work is completed at the job site. Subcontractors are protected even though they may not be one of the parties to a contract with the owner. As a result, a subcontractor can still have a lien against a property even after the owner has paid the general contractor.
Contractor's trust obligations
Under the Act, the contractor is obligated to pay the subcontractors first, from any money received from the owner, but must retain a 10% "holdback." Only after the subcontractors are paid can the contractor use any remaining money, except for the holdback. If the contractor does not pay the subcontractors, they have a legal right to sue the contractor for breach of trust and lien the property.
What if the General Contractor goes out of business?
Even if the general contractor goes out of business or becomes insolvent, there may still be an opportunity for subcontractors to collect money owing to them. The subcontractors may be able to sue the property owner or a third party, such as a bank, for distributing funds that it ought to have known were trust funds. There may also be an opportunity for the subcontractors to sue the directors and senior officers of the general contractor, if they agreed to conduct that they knew or ought to have known was a breach of the company's trust obligations.
If you need legal advice or assistance in starting an action against a contractor or owner, you should contact a lawyer as soon as possible to avoid missing important deadlines, which if missed, may preclude a construction lien claim.